Big Wave Trading incorporates a Mechanical Disciplined Signal Generated System and uses a Market Model system to invest profitably in the stock and futures markets. Big Wave Trading also incorporates a strict risk management system and cuts losses immediately if a new purchase does not work in our favored direction right away.

Monday, December 22, 2008

Low-Volume Pre-Christmas Session Ends With Stocks Lower But Well Off Their Intraday Lows

Today was a very dull session and that was a given by just looking at the volume. However, despite the low volume, stocks still sold off almost all day long as most indexes finished down around 1% to 2%. The good news is that stocks found some support during the last hour and they were able to rally off the lows thus giving respectable closes.

That rally the last hour gave all the indexes little tails on their daily chart patterns and the little tail with a lower volume selloff can almost be called a "constructive" session. Why is this? Because it is obviously better to selloff on lower volume than to selloff on higher volume.

Now, I do know that a lot of people want a Christmas rally so they can end the year on a positive note but I must say that a selloff on lower volume during these next two weeks might be a bullish situation for this market.

The lower volume selloff during the Christmas and New Years holiday week might help stocks build bases that some stocks have been building since their November lows. These bases then may help the market make a move to the upside. This is why a lower volume pullback would actually be a good thing for me to see right now, imo.

If during this low volume pullback, I continue to find some stocks setting up in nice price and volume patterns this might be bullish for a possible uptrend to follow the holiday season. While I understand that charts do not look good out there in the long term and intermediate time frame, a short term rally would not be completely out of the cards as we have had almost non-stop selling all year. In fact, the last time I went long a stock that produced a gain almost 100% was XSI (now ANCI) back in June.

Now, had Telechart2007 had access to OTCBB stocks we could have also gone long AIPC as it set up and broke out of a beautiful cup with high handle pattern on June 18th. This breakout with beautiful price, volume, and max green BOP produced a 124% gain by the top of the current move on December 12th. This stock would have joined our other 8 longs in becoming our 9th and best long since June.

Sadly, Telechart will probably never offer these stocks so we will have to continue to wait for one of the NYSE, Nasdaq, and AMEX stocks to setup in the pattern of AIPC on 6/18. I am sure we will see that but when we will see that I do not know. The good news is that these extremely bullish patterns show up when you least expect it.

However, the truth is for them to setup you normally need a long bear market to allow the patterns to fully develop. In a very volatile market with skittish traders trading stocks like they were baseball cards back in the 1980s you will not get many solid patterns that hold up. However, after a while the dead wait leaves and those gambling daytraders stop trading and leave the game. Then order gets restored and we get 2003. If those of you do not remember 2003, you need to go to my Past Big Winners section under my Longs and study the patterns that setup in 2002/2003 (HIL, TASR, EGHT, SIGM, USNA, FMDAY, and many others). These stocks all setup in beautiful patterns similar to AIPC and ANCI in June and all of these stocks produced very large gains due to a market that was no longer popular to flippers.

The gamblers, weak shareholders, and get-rich-quick crowd that showed up in early 2000 finally left in 2002. Hopefully the gamblers that showed up in 2007 will leave soon thus leaving only us serious investors to manage the beautiful longs that will be produced by a market that will overshoot itself too much to the downside.

This is not going to happen tomorrow but if you remember that low volume pullbacks and heavy volume gains are a very good thing in the market and you remember that nice calm and very very green chart patterns prelude a very big uptrend you will have put yourself ahead of the majority of the crowd out there trying to invest.

I know it is very tough right now to make big money in the market. But if you remember that the BIG money is made in the big uptrends and downtrends, you will learn that markets that go sideways, like this one the past few months, are markets where either your shorts reload for another round of big losses or your longs base out for a potential attack on new highs. Sometimes you don't know which way a market will resolve but you will always have clues.

Right now, it is mixed. I still have 34 shorts with 24 of them being "big winners" producing over 25% gains in under nine months. But I had 38 shorts a few weeks ago. The fact that I still have so many big winners holding indicates to me that on the long term we are probably still going much lower. At the same time the fact that I have gone from 38 shorts to 34 now and have gone from 4 longs to 8 longs during that exact same time tells me that on a 1-3 month time frame we are probably looking at a bear-market bounce.

Why not a new bull market? First off, I still have ZERO perfect charts setting up (examples of perfect charts include LMLP 99, HIL 03, IST 04, HRZ 06, AFSI 07) telling me it will be time to get VERY long soon. Second off, I have had ZERO shorts up over 55% give me FULL covers. I had one stock up 50% give me a full cover but it quickly (the very next day) went back into a clear downtrend and had me upset that I covered it. Without any hot charts setting up and any long-term shorts giving me full cover signals there is NO REASON to get bullish and call a bottom.

However, the fact that I have gone from 38 to 34 shorts and from 4 to 8 longs with three of my four newest longs all up NICELY in a VERY SHORT time (21% in six days, 8% in three days, 8% in four days) tells me that we should expect more of a rally on the sub-intermediate to intermediate term. Just don't go thinking that November was the ultimate lows yet. There is absolutely NO evidence of that yet.

As I have it, the long-term trend is down, the intermediate trend is down, the sub-intermediate trend is lateral, and the short-term uptrend is slightly up.

When my video technician has the free market wrap video up I will post it online and if you are a Gold or Platinum member you can go to the Gold forums and watch part one, two, and three. Part two goes over the longs and shorts in the scans and part three looks at the top sectors in the market right now.

Merry Christmas!!! Be ready for some very low volume sessions the rest of the week.

Remember, there are only nine more days to receive the 25% off holiday deal for a monthly or yearly subscription. This deal will not happen for at least another 12 months, and that is only if other financial websites are doing this, so make sure you take advantage of it now. When this market turns you want to make sure you are going long what I go long so that you may also benefit in the huge gains (see Past Big Winners) that we will have in the next uptrend. One good long, like xxxx up 21% in six days, or well timed short, like ARB up 74% in three months, can pay for the annual subscription within weeks to months.

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Professional Stock Market Investor

I am a professional active-investor in the stock market, run my own website. I have been using a combination of the CANSLIM method with my own style of momentum investing to profitably trade my account and a few friends accounts for over twelve years. I was previously employed at a hedge-fund in NYC before moving to the most beautiful place in the USA. I love my work and I love my life. It, seriously, doesn't get any better than this.